Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?
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Summary:
Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
Series:
Working Paper No. 2015/159
Subject:
Balance of payments Capital controls Capital flows Capital inflows Exchange rate arrangements Exchange rates Foreign exchange Foreign exchange intervention
English
Publication Date:
July 16, 2015
ISBN/ISSN:
9781513585840/1018-5941
Stock No:
WPIEA2015159
Pages:
30
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